Probably has been asked before but when I searched came up with many non-answers.

When setting default address to 'fail' will forwarders still forward?

Thanks

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Yes. If you have a forwarder such as bob@domain.com, email sent to bob@domain.com will continue to be forwarded. However, email sent to the non-existent address xyz@domain.com will not be forwarded if the default address is set to "fail".